Taiwan to Follow Hong Kong With First Chinese Yuan Bonds

Taiwan is poised to sell its first
Chinese yuan-denominated bonds, following Hong Kong and London,
as the cities compete for business in a currency that is moving
toward becoming convertible.

Chinatrust Commercial Bank, a unit of Taipei-based
Chinatrust Financial Holding Co., plans to raise about $169
million from two- to five-year notes that will be traded locally,
the island’s Financial Supervisory Commission said yesterday.
Offshore interbank trading of yuan starts today in Taiwan, with
the currency moving in line with the exchange rate in Hong Kong.

An August pact on cross-strait currency clearing paved the
way for Taiwan to host the world’s second offshore yuan exchange
rate after Hong Kong. China, Asia’s biggest economy, has pledged
to support offshore yuan hubs as it encourages greater use of
the currency in global trade and finance. Outside of Asia,
companies including China Construction Bank Corp. and HSBC
Holdings Plc have listed yuan-denominated debt in London.

“This new development will help the internationalization
of the yuan,” said Steve Wang, the Hong Kong-based head of
fixed-income research at BOCI Securities Ltd., a unit of China’s
fourth-largest bank. “A lot of Taiwanese companies will want to
sell yuan bonds. Overseas corporations who do business with
Taiwan, such as technology companies, will want to sell bonds in
Taiwan too.”

Mega International Commercial Bank Co., a Taipei-based
lender, will also apply to issue yuan debt, according to Jean
Chiu, deputy director general of the FSC’s banking bureau.

Yuan Accounts

On the first day of trading, the yuan was at 6.2145 per
dollar as of 12:21 p.m. in Taipei, with 42 transactions recorded,
according to Taipei Forex Inc. In Hong Kong’s offshore market,
the currency was little changed at 6.2150, while it weakened
0.04 percent to 6.2320 in the onshore Shanghai market.

Taiwan’s monetary authority said 46 lenders have opened
accounts with the island’s yuan-clearing bank and that yuan
deposits will be accepted starting today. Chinese currency
deposits held by Taiwanese lenders’ offshore units totaled 21.5
billion yuan ($3.5 billion) at the end of November. That
compares with the 603 billion yuan of deposits held in Hong Kong
as of December, official data shows.

The U.K. is also seeking to move into the yuan trade, with
the Bank of England saying last month that it is ready “in
principle” for a currency-swap agreement with the People’s Bank
of China. Chancellor of the Exchequer George Osborne is pushing
for London to become an offshore center for yuan trading to
deepen links with China.

Uni-President

Taiwanese businesses have invested an estimated $200
billion in mainland China, even as the political impasse that
dates back to the mid-20th century remains unresolved. Ruled
separately since 1949, when the Nationalists fled to the island
after losing a civil war with Communist forces, Taiwan’s
government restricts mainland Chinese investment in its
industries and limits the number of tourists visiting from China.

Taiwanese companies including Uni-President Enterprises
Corp. have been raising funds in Hong Kong to meet trade-related
payments, build factories and tap surging consumer spending
powered by a 90-fold increase in China’s economy over the past
three decades.

A unit of Uni-President, a Tainan-based instant-noodle
maker, borrowed 1 billion yuan for three years in July.
Chailease Finance BVI Co., a subsidiary of the island’s biggest
commercial finance company, raised 750 million yuan through a
sale of three-year bonds in Hong Kong in March.

Next Step

It is yet to be decided whether so-called “Formosa Bonds”
by the FSC, will be cleared on the island, Yang Chin-Lung,
deputy governor at Taiwan’s central bank, said at yesterday’s
briefing. The Taipei branch of Bank of China Ltd., the second
yuan clearing bank appointed outside of China, will provide
trading quotes for the yuan from today, said General Manager Cai
Rongjun. So far, BOC Hong Kong is the only bond clearer for yuan
debt in the world.

Clearing yuan-denominated debt on the island will make
trading of Formosa bonds more cost-efficient and less risky,
FSC’s Chiu said. Taiwan should be able to take up the job
locally, she said.

Bank of China said in December that it processed 1.72
trillion yuan of cross-border transactions in the currency
during the first nine months of 2012, up 31 percent from the
same period of 2011.

“The next step will be for Taiwan and China to figure out
how the bond-clearing system should be set up to draw more
Taiwanese issuers,” said Crystal Zhao, a fixed-income analyst
at HSBC Holdings in Hong Kong. “The regulator may need time to
see the need for bond clearing to be done in Taiwan.”